Book Review: Short Ain’t Necessarily Simple

You can call economic thinking “counterintuitive,” which most economists do. It’s kind of a badge of honor to be part of this brotherhood of thinking that most find inscrutable. I’ve been involved in the study of economics for a long time (though I am no formal economist), and even to this day my interest is piqued by those who—particularly within the academic profession—attempt to write intelligible explanations or histories of the field.

Yet such attempts generally, heroically, fail. At least in the sense that, among the stacks and stacks of books about the basics of economics and its history, most are rigorous and accurate, yet fail to make the basic concepts intelligible to otherwise intelligent people. It’s frustrating because the basic ideas of economics aren’t that difficult. Economic life is something we all do and most or all of it isn’t a secret, nor is it as fantastically difficult as most professors want it to appear (you know, to look smart).

When books on the basics of economics succeed, they most often push an ideological bent. Take, for example, John Tamny’s recent books (Popular Economics and Who Needs the Fed?), which are virtuosic, highly entertaining, and clear as crystal. They’re just excellent. But … what you’ll get from him is a supply sider view (which I regularly find myself agreeing with). If you want a holistic view of economic basics though, you’re out of luck. He won’t even entertain, say, Keynesian views.

Unfortunately, the search must go on. Heinz Kurz’ Economic Thought: A Brief History, is concise, rigorous and potent at explaining the history of economic thought. Kurz’ technical grasp on the big ideas of economics is impressive. Here’s the catch: Though it’s short and seems inviting, it isn’t readable for anyone other than advanced students and economic professionals, and even some of them will get lost.

But the book is also revelatory to the study of economics in a variety of ways. First, there has always been a Great Man theory at work in economics—the ideas are attributed to the person. This is common within any social science, but in economics it’s more pronounced. The truth no one wants to confront about economics is that it’s more like a philosophy than a science. Knowledge doesn’t accumulate like it does in a physical science. It’s a lot of disparate ideas and models—often wholly different worldviews. As such, economic theories and schools don’t generally build on each other—they compete with each other. Which means the people behind them—the economic philosophers—are central to the story.

On that count, some of the choices seem odd. Adam Smith, Alfred Marshall, John Maynard Keynes, Joseph Schumpeter, even Robert Samuelson all stand as titans and get their due. But the likes of Milton Friedman—to my mind the patron saint of empirical economics and progenitor of Monetarism, still a widely discussed theory today—gets nary a page. And Behavioral Economics, the titanic bombshell emerging in the late 70s, which has forced every economist on the planet to rethink their views in one way or another, gets about three quarters of a page.

Which brings us to the second point: You can’t help but realize how much economic theory is disengaged from reality. The crude tools of knowledge economics has generated—particularly the normative economic equilibrium models fashioned well over a hundred years ago—just aren’t up to the task of really codifying human economic behavior in any coherent, systematic way.

Third, economics seems to have no idea what it is. I had a professor once tell me “Economics has nothing at all to do with money! Money is neutral and economics is about utility.” And yet, virtually all of twentieth century economics deals with money, its supply, its interest, and how those factors influence economies. This might seem like a mere problem of specialization in the field—which it is. But it runs far deeper.

And so, as this book passes from the classical Enlightenment and Industrial Revolution into the twentieth century, it becomes obvious economic thought isn’t progressing too well. Theoretical econ gets so esoteric by around 1950 even Nobel Prize winners start to abandon their own theories, or are reduced to tautology. Kenneth Arrow, who was a great economist, by the end of his career more or less admitted his models didn’t reflect reality well enough to be useful. What’s more, observations like “people aren’t fully rational” or “monopolies have pricing power” feel almost absurdly obvious to the layperson who interacts with the world regularly. Do we need a mathematical proof for that?

Most of today’s economics falls closer to statistics. In the era of “Big Data”, economics has swerved toward sophisticated empiricism (commonly called “econometrics”), and left theorizing to the corners. But as with all true forms of knowledge, there is always an intersection between principles and data, worldviews and reality. Data by itself has never led to knowledge. It’s the application of human thought, informed by abstracted conceptual ideas, that transforms data into information. The concepts of free markets or comparative advantage in trade—these can’t be put aside. And this is why economics will always have a foot in the philosophical realm: In the end, economics is not a dispassionate, objective science. It’s as informed by ideals as any intellectual topic. And what your ideals are will matter greatly toward which type of economic thinking you think is right.

Does that mean economics is a dying profession? Absolutely not. It’s more important than ever. Economics is, at its core, the philosophy of making the most out of life; a style of thinking that helps you optimize and maximize your actions within a world of choices and constrained resources. There are few practical modes of knowledge worth obtaining more than that. The better you become at that style of thinking, the better off you’ll be in the economic part of your life. But the field needs some new ideas and better books to get more laypeople in the know.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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